ISLAMABAD: In a surprising turn, Pakistan’s inflation dropped to just 0.3% in April—its lowest level since 1965—defying both government and independent forecasts, and increasing pressure on the central bank ahead of its upcoming monetary policy meeting.
Data released by the Pakistan Bureau of Statistics (PBS) on Friday revealed a dramatic slowdown in consumer prices, with the inflation rate well below the expected 2%. It’s a figure not seen in nearly six decades, with April’s reading only slightly above the historic low of 0.2% recorded in the mid-1960s.
This unexpected dip has prompted renewed scrutiny of how inflation is measured and comes at a time when the State Bank of Pakistan (SBP) has been under fire for maintaining high interest rates—currently at 22%—despite signs that the economy is cooling.
SBP Governor Jameel Ahmad had previously told lawmakers that inflation would begin climbing from March and peak in September. That forecast influenced the central bank’s decision not to lower interest rates at its last meeting, a move now drawing criticism from economists and business leaders alike.
The bank’s Monetary Policy Committee is scheduled to meet on Monday, and with inflation now far below the policy rate, calls for a rate cut are growing louder. Analysts say there’s little justification for maintaining such high borrowing costs when inflation is at record lows, the rupee is stable, and the economy shows no signs of overheating.
The inflation-policy rate gap has now widened to an eye-catching 11.7%, raising concerns that the current stance is doing more harm than good—especially for businesses and consumers. Banks, meanwhile, continue to benefit from the high rates through risk-free returns on government securities.
Even the International Monetary Fund (IMF), which had predicted that low inflation would be short-lived, may need to revise its outlook. Just weeks ago, the IMF forecast inflation at 5.1% for this year and around 7% in the next fiscal period.
April’s data paints a clear picture: average inflation from July to April now stands at 4.7%, well below the government’s annual target of 12%. Core inflation—which strips out food and energy costs—has also cooled, dropping to 7.4% in urban areas and 9% in rural regions.
Urban inflation in April came in at just 0.5%, while prices in rural areas actually fell. Food inflation declined sharply, particularly in rural regions, where prices dropped by 4.6% year-on-year. Perishable items like onions and tomatoes saw significant price reductions—by 75% and 58%, respectively—while wheat, tea, and chicken also became more affordable.
The decline wasn’t limited to food. Electricity tariffs were slashed by 27% temporarily, and petrol prices were down 11%, despite the government’s imposition of an additional tax of Rs18 per litre.
Meanwhile, the Sensitive Price Index (SPI)—which tracks essential household items on a weekly basis—showed a minor increase of 0.15% for the week ending April 30. However, on an annual basis, the SPI was down 2.41%, reinforcing the broader trend of easing inflationary pressure.
The central bank now faces a crucial decision: whether to stick with a conservative approach or respond to the data and cut interest rates. For a country still navigating economic recovery, the stakes couldn’t be higher.